Brussels brings Gazprom to heel, for now

Gazprom is set to escape an EU antitrust probe without a fine under a deal announced Monday, but only after making sweeping concessions that just a few years ago would have seemed unimaginable.

By settling, Russia dropped its long-held position that, as a Kremlin-controlled company, Gazprom could not be subjected to EU competition rules. Instead, Gazprom agreed to make deep changes to the way it has historically done business in Central and Eastern Europe, and bowed to EU rules — even submitting its contracts for verification by EU agents.

“We believe that Gazprom’s commitments will enable the free flow of gas in Central and Eastern Europe at competitive prices,” said Margrethe Vestager, the European commissioner for competition.

And she was at pains to underline that any failure to meet the terms of the deal would quickly result in billion-euro fines for the company.

That’s still not enough for the gas giant’s most ardent critics in parts of Central and Eastern Europe, who wanted the company punished with a painful fine now.

“But how about the past time period, when Gazprom was simply earning dozens of billions, if not hundreds of billions, using its monopoly on the gas market?” asked Petras Auštrevičius, a Lithuanian MEP from the ALDE Liberal group.

Monday’s announcement is the culmination of a long tussle between Moscow and Brussels. It was launched following a complaint from Lithuania that Gazprom, which supplied all of the country’s natural gas, was abusing its market position by overcharging and banning the resale of gas — something that’s not permitted under EU rules. In all, the European Commission named eight countries in its inquiry.

All of those countries, once part of Moscow’s East European empire, worried that Gazprom was being used as a political weapon to reimpose Russian influence.

The Commission raided Gazprom offices in 2011, launched an investigation in 2012, and opened an antitrust case in 2015.

Gazprom’s risk was enormous: The Commission can impose a fine of up to 10 percent of a company’s annual turnover — in Gazprom’s case as much as €6.8 billion, according to its 2015 results.

But despite pressure from Central Europe to take a tough line, Brussels was wary of going to war with Gazprom at a time when relations between the EU and Russia were already strained thanks to Russia’s military adventures in Ukraine.

The goal, Vestager told reporters, was to correct Gazprom’s business methods and not to exact revenge.

“We found it was most helpful for citizens to have Gazprom’s future behavior changed,” she said. The goal is to make the market work, the commissioner added, “no matter the flag, no matter the ownership, no matter the size of your company.”

The conditions of the deal

As part of the tentative deal, Gazprom agreed to change how it negotiates gas prices with countries in Central and Eastern Europe, in an effort to create a more competitive market. They will now have the right to ask for a price review if they believe they are paying Gazprom higher gas prices than those on West European gas hubs.

It also agreed to drop clauses restricting customers’ ability to sell gas across borders and create opportunities for more gas to flow to the Baltic states and Bulgaria.

Lastly, the Russian energy company agreed to drop some demands it made by using its dominant position in Central and Eastern Europe. It said it would not seek damages from Bulgaria following the cancellation of the South Stream gas pipeline project, which was meant to bring Russian gas through Turkey and into Bulgaria.

The company committed to stick to its promises under the deal for eight years. Vestager said there will be trustees in place to ensure it follows through. Once the eight years are up, “then we will see what happens then,” she said.

Interested parties can give feedback on the settlement until May 4. Then the Commission can formally adopt the offer, ask Gazprom to improve it, or revive its inquiry backed with the threat of fines. Once the agreement becomes legally binding, the Commission can impose a fine without having to prove an infringement of EU antitrust rules if it finds Gazprom reneged on the conditions.

Settling was easier because the political optics of the dispute with Gazprom have shifted thanks to changes in the gas market and because the company has tempered its behavior.

Central European countries are reselling gas to Ukraine without much of a squawk from Moscow.

Lithuania and Poland have both opened liquefied natural gas terminals on the Baltic, giving them access to non-Russian sources of energy. Gas prices have also fallen in tandem with lower oil prices, making Gazprom contracts less painful.

And Gazprom is much more careful about offending Brussels.

“The commitments provided by Gazprom — which are a result of substantial work — demonstrate our willingness to address within the established procedure the relevant concerns of the European Commission,” said Gazprom’s Deputy Chairman Alexander Medvedev.

Related stories on these topics:

Pexit

Seems that there are many candidates to work as German chancellor Schroeder for gazprom…

Posted on 3/13/17 | 11:36 PM CEST

Jodocus2

This is sometimes called Realpolitik.

The Russians are big and armed and dangerous and also have a load of natural gas that we need. So you don’t piss them off if you have any option.

Now is the time for all sensible folk to buckle down on alternative energy sources and home insulation in order to lessen their dependency on (Russian) natural gas as per EU policy. But try explaining that to a load of populists.

Posted on 3/14/17 | 9:13 PM CEST

trisul

It is obvious that the Kremlin will respect a strong EU and try to subvert at any sign of weakness. Good job EC !!